Hassan plays host to new Middle East

A PENCHANT for grandeur once led King Hassan of Morocco to raise to the heavens a great marble-clad mosque on the Atlantic coast at Casablanca. From its gleaming minaret a green laser beam points to Mecca in Saudi Arabia, at the far end of the Arab world.

It is with similar vision that the King plays host today to 200 political leaders and 1,300 businessmen from some 40 countries, gathered in Casablanca for the first Middle East/North Africa economic summit.

The gathering is billed as an unprecedented opportunity to generate a new partnership between government and business in the Middle East.

'An area from the Atlantic to the Gulf would integrate 200-300 million consumers, an opportunity that no major global company could afford to miss,' said Professor Klaus Schwab of the World Economic Forum. 'Today's global economy is based on regions; the only region still fragmented is the Middle East and North Africa.'

The timing of the conference could hardly appear more auspicious.

Last Wednesday, a formal peace treaty between Israel and Jordan put an end to 46 years of war; and on Thursday, Bill Clinton became the first US president to visit Syria in two decades. The fact that Israel's Prime Minister Yitzhak Rabin and Foreign Minister Shimon Peres are to attend the conference underlines the multiplying signs of economic contact between Israel and its old foes.

But the reasons why the Arab world has languished amid division and war for half a century are not likely to disappear as the result of a large amount of business-class travel and conference rhetoric. The diplomacy of peace remains fragile. PLO leader Yasser Arafat is waging a battle against the Islamic fundamentalist movement, Hamas, which derides his agreement with Israel. In Lebanon, Prime Minister Rafiq al-Hariri is pressing ahead with the reconstruction of Beirut, but the Iranian-backed militia, Hizbollah, still holds sway in the south of the country.

The secular Egyptian government faces a violent campaign by fundamentalists, which has halved its income from tourism. Libya remains an international pariah. And in King Hassan's neighbour, Algeria, security forces are locked in a vicious battle against Islamic insurgents.

This is not the most promising landscape against which to talk of emerging stockmarkets and foreign investment. And financial reformers have failed to halt an outflow of regional capital, due in large part to a lack of confidence in the ability of Arab states to set up functioning free market economies.

The pool of Arab offshore savings has been estimated at dollars 650bn (pounds 420bn), most of it invested in the West and Japan. The overseas assets held by the 22 members of the Arab League actually exceed their combined gross domestic product by dollars 200bn. Only 10 Arab countries have official stock exchanges, ranging from the sleepy Egyptian bourse to the small but dynamic new market in Jordan.

None the less, the risks can also generate opportunity. The summit has a highly specific agenda. Some 200 projects are up for individual discussion.

The European Union plans later this year to create a free trade area embracing southern and eastern shores of the Mediterranean. The political impetus derives from an understanding that the Arab countries must be brought into Europe's economic orbit and a fear of disaster should poverty bring about the collapse of existing governments. The average income in all Arab countries bordering the Mediterranean is less than dollars 1,000 (pounds 625) a year, a fraction of Israel's.

'There is a common feeling among Arab and Israeli businessmen, as well as among Jewish businessmen from outside the region, that economic prosperity is the best guarantee for the peace process,' King Hassan said last week.

He speaks in terms that would gladden the heart of any Conservative minister, lauding privatisations and a shrinking state sector as key measures to advance the economies. 'Private capital is not only essential from the economic point of view but it is also vital for political stability,' he said.

On the conference agenda is an ambitious plan to double food production in the region within 10 years, bringing Israeli expertise in irrigation and crop development to the vast and under-exploited Arab agricultural market.

Of 490 million acres of land in Arab countries at present under cultivation, little more than one-quarter is fully exploited. Arab League countries last year spent more than dollars 20bn on food imports.

Even more grandiose ideas have captured the imagination of planners in a way unseen since the European rush to create colonies at the end of the 19th century. One plan envisages a rail link from Cairo to Casablanca; Colonel Gaddafi has already signed an initial contract for the line to cross Libya.

Other plans have been drawn up to revive the network of railways from southern Turkey to the Gulf and the Suez Canal that operated before the days of Lawrence of Arabia.

But the most impressive projects involve the Middle East's most precious commodity after oil: water, and the politics of water supply, have long been identified as a key source of conflicts, provoking disputes between Syria and Turkey and between Israel and all its neighbours.

Now the Israeli Energy Ministry has revived a plan for canals linking the Dead Sea with the Mediterranean and the Red Sea. They would generate cheap electric power by exploiting the Dead Sea's location at the lowest point on earth, 1,300ft below sea level. The energy would power desalination plants to provide fresh water for agricultural development; benefits could flow to Israel, Jordan and the Palestinians.

Egypt, Jordan and the PLO have also discussed with Israel the possibility of creating a merged electricity grid. All but unnoticed, the momentum generated by the 1991 Middle East Peace Conference in Madrid has given birth to a series of discussions about co-operation in transport, agriculture, transport and tourism projects.

The idea was always to put in place a mechanism that could begin to operate once formal treaties had been signed. That mechanism may soon be ready. All it needs is a final turn of the key - but that may yet prove the most difficult political task. It would be a brave investor who ventures into the new Middle East.

(Map omitted)